One of the biggest genre ebook distributors in the US has closed suddenly, leaving thousands of authors in the UK and US out of pocket. AllRomance.com and its sister company OmniLit are the latest casualties of the downturn in the market for digital books.

Customers were given four days in which to use up credits, download purchases and back up libraries or face losing them. The distributor’s 5,000 authors and publishers, which include major players such as Mills & Boon, were given three days’ notice of closure.

The news broke at the end of last week in an email from owner Lori James, who also writes romances as Samantha Sommersby. She wrote that the company was unable to pay fourth-quarter liabilities in full and proposed royalties of 10%, rather than 60%, for books sold up to 27 December.

As well as distributing books from all the main publishers, small presses and independent authors, the site also had its own publishing arm and provided content to iTunes and Amazon, all of which has been affected by the closure.

Authors reacted angrily about the short notice they were given to accept the proposed deal. “The ramifications of getting three days’ notice of closure have been huge,” said one writer, Isobel Starling. She described the offer as “a joke” and added: “Readers had three days to download what would be millions of ebooks they purchased. The site crashed constantly under the strain and money spent on gift cards and store credit cards has been lost.”

Starling said that she had reported James to the FBI and the UK Cyber Crime unit. “None of the 5,000 plus authors, the small and large publishing houses and readers seeking refunds know where they stand,” she added.

In a bizarre twist, Carol Ann MacKay, who edits James’s novels written under the Sommersby pseudonym, posted a message on Sommersby’s Facebook page advising her to act over the closure. In the post she said: “All the books I edited are at the top of the list they are pushing! No $$ for you but they are selling your books? Some of you need to get a cease and desist order.”

In her email James claimed the company had reported a profit every year since it began trading in 2006, and blamed the financial forecast for 2017 for its troubles. “It is my sincere hope that we will be able to settle this account and avoid filing for bankruptcy, which would undoubtedly be a prolonged and costly process.”

The email came days after she had contacted authors about expansion into audio and foreign rights. The Guardian received no response to attempts to contact James and AllRomance.

After a steep climb in sales over the past 10 years, digital book downloads appear to have peaked on both sides of the Atlantic. According to Publishers Weekly, the Association of American Publishers found that ebook sales for trade publishers fell 14% in 2015 compared to 2014, and accounted for 20% of the overall trade-book revenue, down from 23% in 2014.

In the UK, ebook sales fell by just under 2% from £563m in 2014 to £554m in 2015. Over the same period, sales of physical books rose slightly, by 0.4% - the first increase in four years. Trade leaders have blamed “digital fatigue” for the decline.

According to the latest figures from data-monitoring agency Nielsen PubTrack Digital, the decline showed no sign of abating in 2016. In the first half of the year to June 2016, it reported 2.1m unit sales, compared with 2.2m for the first half of 2015. Though unable to supply exact figures, the agency, which monitors sales in the US as well, said this trend is reflected on both sides of the Atlantic.